Other Assurance

Services

Chapter 25

2006 Prentice Hall Business Publishing, Auditing 11/e, Arens/Beasley/Elder 25 - 1

 Learning Objective 1

Distinguish AICPA attestation

standards from auditing stan-
dards and know the type of
engagements to which they apply.

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 Attestation Engagements

Attestation standards

Types of attestation engagements

Levels of service

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 Types of Engagements and
Related Reports
Type of Amount of Level of Form of
Engagement Evidence Assurance Conclusion Distribution

Examination Extensive High Positive General

Review Significant Moderate Negative General
Agreed-upon
procedures Varying Varying Findings Limited

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 Learning Objective 2

Understand the nature of

WebTrust assurance services.

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 WebTrust Services

In a WebTrust assurance services engagement,

a client engages a CPA to provide reasonable
assurance that a companys Web site complies
with certain Trust Services principles and criteria
for one or more aspects of e-commerce activities.

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 WebTrust Services

The WebTrust service is a specific service

developed under the broader Trust Services
principles and criteria jointly issued in 2003
by the AICPA and CICA.

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 Five Trust Services Principles
The system is protected against
Security unauthorized access
(both physical and logical).
The system is available for operation
Availability
and use as committed or agreed.
Processing System processing is complete,
integrity accurate, timely, and authorized.
Personal information obtained as a result of
Online
e-commerce is collected, used, disclosed,
privacy
and retained as committed or agreed.
Information designated as confidential
Confidentiality
is protected as committed or agreed.
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 Learning Objective 3

Understand the nature of

SysTrust assurance services.

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 SysTrust Services

In a SysTrust engagement, the SysTrust

licensed accountant evaluates a
companys computer system using
Trust Services principles and criteria.

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 SysTrust Services

A licensed SysTrust accountant

may report on only one Trust Service
principle or any combination of principles.

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 Learning Objective 4

Describe special engagements

to attest to prospective financial
statements.

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 Prospective Financial Statements

Forecasts and projections

Use of prospective financial statements

Types of engagements

Examination of prospective financial statements

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 Learning Objective 5

Describe agreed-upon procedures

engagements.

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 Agreed-Upon Procedures
Engagements
The audit is limited to certain specific
audit procedures.

These are referred to as procedures

and findings engagements.

The SASs deal with financial statement

items, whereas the SSAEs deal with
nonfinancial statement subject matter.

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 Learning Objective 6

Understand the level of assurance

and evidence requirements for
review and compilation services.

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 Review and Compilation Services

The standards for compilations and

reviews of financial statements are called...

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 Relationship between Evidence
Accumulation and Assurance Attained
High
Assurance Attained

(audit)
Level of

Moderate
(review)

None
(compilation)
Minimal Significant Extensive
(compilation) (review) (audit)
Amount of Evidence Accumulated
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 Review Services

A review service (SSARS review) engagement

is designed to allow the accountant to express
limited assurance that the financial statements
are in accordance with GAAP.

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 Procedures Suggested for Review
Engagements
Obtain knowledge of the accounting
principles of the clients industry.

Obtain knowledge of the client.

Make inquiries of management.

Perform analytical procedures.

Obtain letter of representation.

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 Make Inquires of Management

1. Inquire as to the companys procedures for

recording, classifying, and summarizing
transactions and disclosing information
in the statements.
2. Inquire into actions taken at meetings of
stockholders and the board of directors.
3. Inquire of persons having responsibility
for financial and accounting matters.

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 Form of Report

1. The first paragraph is similar to an audit report

except for its reference to a review service
rather than an audit.

2. The second paragraph notes that a review

consists primarily of inquiries and
analytical procedures.

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 Form of Report

3. The third paragraph expresses limited assurance

in the form of a negative assurance that we are
not aware of any material modifications that
should be made to the financial statements.

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 Failure to Follow GAAP

If a client has failed to follow GAAP in

a review engagement, a modification
of the report is needed.

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 Compilation Services

A compilation service engagement is defined in

SSARS as one in which the accountant presents
to a client or third party financial statements that
the accountant has prepared.

The CPA firm does not express any assurance

on the statements.

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 Requirements for Compilation
Establish an understanding with the client about
the nature and limitations of the services to be
performed and a description of the report.

Possess knowledge about the accounting

principles and practices of the clients industry.

Know the client; the nature of the clients

business transactions; and the basis, form,
and content of the financial statements.

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 Requirements for Compilation
Make inquiries to determine whether
the clients information is satisfactory.

Read the compiled financial statements

and be alert for any obvious omissions
or errors in arithmetic and GAAP.

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 Form of Compilation Report

Compilation with full disclosure:

It requires disclosures in accordance with GAAP.

Compilation that omits substantially all disclosures:

This type of statement is usually expected to be
used primarily for management purposes only.

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 Form of Compilation Report

Compilation without independence:

A CPA firm can issue a compilation report even
if it is not independent with respect to the client,
as defined by the Code of Professional Conduct.

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 Learning Objective 7

Describe special engagements

to review interim financial
information for public
companies.

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 Interim Financial Information for
Public Companies
The SEC requires quarterly financial statements
to be reviewed by the companys external auditor
prior to the companys filing of the Form 10Q.

Like reviews under SSARS, a review for a public

company does not provide a basis for expressing
a positive form opinion.

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 Interim Financial Information for
Public Companies
The review is conducted according to the
standards of the PCAOB, and there is no
reference to the SSARS in a review report.

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 Learning Objective 8

Describe other audit and limited

assurance engagements related
to historical financial statements.

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 Other Comprehensive Basis
of Accounting
Cash or modified cash basis

Basis used to comply with the requirements

of a regulatory agency

Income tax basis

A definite set of criteria having substantial

support

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 Reporting Requirements

Introductory paragraph

Scope paragraph

Middle paragraph stating the accounting basis

Opinion paragraph

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 Specified Elements, Accounts,
or Items
The specified elements, accounts, or items
must be identified.

The basis on which the specified elements,

accounts, or items are presented and the
agreements specifying the basis must
be described.

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 Specified Elements, Accounts,
or Items
The source of significant interpretations made
by the client about the provisions of a relevant
agreement must be indicated and described.

If the specified element, account, or item is

presented on a basis that is not in conformity
with GAAP, a paragraph that restricts the
distribution of the report to those within
the entity and the parties to the contract
or agreement must be added.
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 Debt Compliance Letters and
Similar Reports
The engagement and report should be
limited to compliance matters the
auditor is qualified to evaluate.

The auditor should provide a debt

compliance letter only for a client
for whom the auditor has done an
audit of the overall financial statements.

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 Debt Compliance Letters and
Similar Reports
The auditors opinion is in the form of a
negative assurance, stating that nothing
came to the auditors attention that would
lead the auditor to believe there was
noncompliance.

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 End of Chapter 25

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